Are Government Incentives a Good Idea?

The mortgage marketplace, especially the servicing arena, is being bombarded with new default management options that include new legislation, counseling, data analytics systems, technology, and other tools designed to ease the crisis. And talking about the crisis, related issues within the servicing space are subject to debate and differing opinions. Their pros and cons reflect how servicing experts see the future of their industry.

In this issue we asked for insights about the Obama Administration's New Homeowner Affordability and Stability Plan which is expected to generate a new wave of refinancing by offering servicers incentives to lower monthly payments to an affordable level and also allow refis for those who owe more than their house is worth. Millions of homeowners could profit from this.

Is it a good idea or a bad idea, and why?
Fred Melgaard, EVP, DRI Management.

Con: I think many people will agree with the first reaction from a CNBC commentator recently, who said, "Do we really want to be paying our neighbor's mortgage?" Many people feel that way, and understandably.

Pro: The larger picture is much more complex. If there's a way we can keep more homes from coming on the market we'll stop driving home prices down. We don't want another million homes to come on the market when the next wave of adjustable loans reset and people default, and this may help prevent that from happening.

Pro: "In the broader view, there's nothing bad about a program that can keep properties from flooding the market and further damaging the already declining values we see out there. So this can be viewed as a step in the right direction.

Con: It is far from perfect, however. There are incentives to keep people whose values have suffered from walking away, but it doesn't seem to take into account ARMs that are about to adjust or those who are delinquent now. In addition, it will be a challenge for the industry to handle nine million or so modifications in the near future."